Odds are zero of 3 new LNG plants ‘under construction’ in BC by 2020

Remember 2013 when the promise of billions in tax revenue from LNG development – and a job in every tradesperson’s pot – helped Christy Clark come from behind to whip Adrian Dix and the NDP? LNG is back for an encore performance in this campaign and the Liberals are still selling false hopes.

BC NDP leader John Horgan (right). Photo: John Horgan/Facebook.

Clark sent out a press release Thursday extolling the virtues of her government’s LNG (liquified natural gas) successes: the $400 million expansion of Fortis’ Tilbury plant, a green light for the Woodfibre facility in Squamish, and a conditional final investment decision on the $27 billion Pacific NorthWest LNG.

Pacific NorthWest LNG isn’t exactly in trouble yet, but parent company Petronas of Malaysia is dragging its feet on the actual final investment decision because of a glut of LNG supply and low global prices.

Which is where Clark’s grand vision for BC LNG falls apart.

I interviewed energy economist Jennifer Winter, the University of Calgary, about prospects for the provincial industry. Not surprisingly, the future is a lot less rosy than the Premier lets on.

Winter says the pace of LNG investment will slow over the next 10 years.

Jennifer Winter, professor, Dept. of Economics, Univ. of Calgary.

“These are slow-moving industries because of the cost that it takes to build a liquefaction facility and so there’s a lot of in-depth analysis to make sure that it is the right decision for companies,” she said.

“Like it or not, Canada’s environmental regulatory process is slower and more cumbersome than our competitors. Not Australia, perhaps, but certainly Africa, the Middle East, and the US.”

The United States, in particular, has been increasing its LNG capacity at a past pace. Instead of building expensive liquefaction plants, American companies are retrofitting regasification – the process that turns LNG back into gas – facilities to liquify natural gas.

Not only is retrofitting much cheaper and quicker, but American exporters can draw cheap gas from nearby shale basins, such as the Marcellus, Utica, Permian, and Eagle Ford.

To make matters worse for Canadian competitors, changes to the Panama Canal last year now allow US LNG exporters easy access to Asia, cutting the shipping distance almost in half.

“Canada has some benefits but we are a more challenging environment, especially because it is a new industry for BC,” says Winter.

Then there’s the issue of Chinese demand.

Clark often touts LNG’s role as a replacement for coal in China’s power plants. The Liberal press release notes that global LNG demand is forecast to increase by almost 50 per cent by 2040.

But Winter says China’s intentions aren’t entirely clear just yet: “What I think really matters is the relative price of natural gas and how committed China is to building out electrical infrastructure,” she said.

“China tends to be a lot more strategic in their energy choices. I think the fact that they would have to import quite a bit of natural gas could mean that they still go with coal, just invest really heavily in carbon capture and storage in order to reduce emissions from coal-based electricity.”

China recently cancelled over 100 planned coal power plants, which garnered plenty of press after the Paris climate accord ratification, but ignored is the 200-plus plants still on the drawing board. The world’s largest coal consumer uses around 3.5 billion tonnes a year and is consolidating national production in 10 mega-companies to bring down prices and improve efficiencies.

Finally, because the price of natural gas is tied to that of oil – which doesn’t appear ready to break $60/b until 2018 or later – in many parts of the world, current low prices aren’t likely to rebound any time soon, according to Winter.

British Columbia does, however, offer some advantages to global LNG producers.

“We’re politically stable, and you don’t have to worry about governments expropriating asset or corruption, things like that,” says Winter. “The further north you go, the cooler it is, and that means the conversion of natural gas to LNG is also cheaper. So, there are lots of pros and cons associated with BC relative to the rest of the world.”

Bottom line, there is only so much Clark’s government can do to facilitate LNG in British Columbia. The Premier has no influence over the federal regulatory process, which Winter says “delayed the development of the industry in BC.”

“At the end of the day, it’s companies making an investment and deciding on whether or not that’s the best use of their dollars. Sure, it’s fine for the government to say that the future is bright for LNG, but Clark has also done some things since the last election that have made the investment environment more challenging, like the introduction of that special LNG income tax,” says Winter.

“It’s an interesting dichotomy in that the Liberals really seem to be promoting LNG as a cash cow for BC, but really all it is is a manufacturing process that turns natural gas to a liquid. It’s not something that is super profitable.”

According to Winter, the future for BC LNG may be bright in the medium-term – 10 to 15 years from now – but not in the near term.

Nevertheless, Clark is sticking to her guns. Speaking at a Kitimat election stop, she said “the global market is slow, but that will not stop us,” as reported by the Globe and Mail, adding that she still hopes to see three new LNG plants under construction by 2020.

NDP leader John Horgan has also jumped on the LNG bandwagon, unlike Adrian Dix in 2013, but he’s being much more circumspect about the industry’s prospects, adding enough qualifiers – like First Nations support and emissions fitting within the provincial emissions reduction plan – to give him wiggle room if needs it during the campaign.

LNG won’t play the big role it did in the last election, but Clark is gutsy for even putting in the Liberal platform. She oversold the economic and fiscal benefits last time, and appears ready to do so again, albeit with with more caveats.

The chances of three LNG plants under construction by 2020 are nil. Will BC voters buy Clark’s “bright future” anyway?